Rules 1 to 3 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Foreign Exchange (Compounding Proceedings) Rules, 2024 are the Central Government's rules for settling a contravention of the Foreign Exchange Management Act, 1999 by a compounding order instead of an adjudication. Rules 1 to 3 give the title and commencement, define the terms the other rules use, and say who may act as the compounding authority. This article reads those three rules and draws a map of rules 4 to 14. To discuss a contravention of your own, speak to our FEMA compounding team.
The Rules, notified as G.S.R. 566(E) on 12 September 2024, supersede the Foreign Exchange (Compounding Proceedings) Rules, 2000 and came into force on the date of their publication in the Official Gazette. Rule 3 makes the Director of Enforcement, or an officer of the Directorate of Enforcement not below the rank of Deputy Director or Deputy Legal Adviser, or an officer of the Reserve Bank not below the rank of Assistant General Manager, the compounding authority, in each case as authorised by the Central Government.
Which text is being explained
The Rules are G.S.R. 566(E), Gazette of India (Extraordinary), Ministry of Finance (Department of Economic Affairs), dated the 12th September, 2024, as notified on 12 September 2024. They are made under clause (b) of sub-section (2) of section 46 read with sub-section (1) of section 15 of the Foreign Exchange Management Act, 1999; see our articles on section 15, power to compound a contravention and section 46, power of the Central Government to make rules. Later amendments should be checked on the Gazette and Reserve Bank sites.
A note on the printed text: the short title is "Foreign Exchange (Compounding Proceedings) Rules, 2024", without the word "Management", and the preamble opens a bracket "(42 of 1999, and" that is never closed. Both are slips in the notification and are reproduced as printed.
Rule 1: title, commencement and supersession
Rule 1(1) gives the short title. Rule 1(2) says the Rules come into force on the date of their publication in the Official Gazette. The preamble says the Rules are made "in supersession of the Foreign Exchange (Compounding Proceedings) Rules, 2000, except as respects things done or omitted to be done before such supersession". Rule 14 adds that a compounding application pending on the date of commencement is governed by the 2000 Rules superseded herein. So an application already pending on 12 September 2024 stays under the older Rules, and a new application goes under the 2024 Rules.
Rule 2: defined terms
| Term | Meaning as printed |
|---|---|
| Act | The Foreign Exchange Management Act, 1999 (42 of 1999) |
| Authorised officer | An officer authorised under rule 3 |
| Applicant | A person who makes an application under sub-rule (4) of rule 4 or, as the case may be, sub-rule (4) of rule 5 to the compounding authority |
| Compounding order | An order issued for compounding a contravention as specified in sub-section (1) of section 15 of the Act |
| Prescribed Form | The Form annexed to the Rules |
| Section | A section of the Act |
Rule 2(2) says words and expressions used but not defined in the Rules, but defined in the Act, have the meanings assigned to them in the Act. The Rules do not define "compounding authority" in rule 2; rule 3 supplies it.
Rule 3: who is the compounding authority
Rule 3 reads: "The Director of Enforcement or any of the following officers authorised by the Central Government shall be the compounding authority for the purposes of these rules, namely:"
- (a) an officer of the Directorate of Enforcement not below the rank of Deputy Director or Deputy Legal Adviser; or
- (b) an officer of the Reserve Bank not below the rank of the Assistant General Manager.
Two points follow. First, the Rules give two parallel tracks. The Reserve Bank track is dealt with in rule 4, which sets the ranks of Reserve Bank officers against the sum involved. The Directorate of Enforcement track is dealt with in rule 5. Second, the officers named in rule 3 act only when "authorised by the Central Government"; the Rules do not set out the instrument of authorisation, so it is not described here.
Map of rules 4 to 14
| Rule | Subject | Read more |
|---|---|---|
| 4 | Reserve Bank officers who compound, by the sum involved; three-year bar on a similar contravention; application and fee | Rule 4 article |
| 5 | Directorate of Enforcement officers who compound contraventions of clause (a) of section 3 | Rule 5 article |
| 6 | Discontinuation of adjudication once a contravention is compounded | Rules 6, 7 and 9 |
| 7 | Discharge on compounding after a complaint under section 16(3) | same |
| 8 | Procedure for compounding; compounding order within a stated number of days of a complete application | Procedure article |
| 9 | Contraventions not to be compounded in certain cases | Rules 6, 7 and 9 |
| 10 to 13 | Payment, failure to pay, contents and copy of the order | Procedure article |
| 14 | Pending applications under the 2000 Rules | same |
| Form | The prescribed Form, see rules 4(4), 5(4) and 8 | Form article |
What the authority does, in one paragraph
A person who has contravened the Act applies in the prescribed Form, with a fee, to the compounding authority; the authority may call for information, hears the applicant, and passes a compounding order that specifies the provision contravened and the sum compounded. The sum is paid within the period the Rules print; if paid, adjudication under section 16 is discontinued, and if not, the application is treated as never made. The details of each step are in the articles linked above. For the difference between compounding and adjudication, see our guide on compounding versus adjudication, and for how to apply, our guide on how to apply for FEMA compounding.
Example
Tara Infra Ltd finds that it reported a foreign investment late. It wants to settle the matter by compounding. The first question under the Rules is which compounding authority applies: because the contravention is not of clause (a) of section 3, rule 4 points to the Reserve Bank, and the rank of the officer depends on the sum involved. If the contravention had been of clause (a) of section 3 (see our article on section 3 of the Act), rule 5 would send the application to the Directorate of Enforcement. Tara Infra would also check that its application is filed under the 2024 Rules, because it was not pending on 12 September 2024.
Common mistakes
- Assuming the Reserve Bank handles every compounding. Contraventions of clause (a) of section 3 go to the Directorate of Enforcement under rule 5.
- Treating an application pending on 12 September 2024 as one under the new Rules; rule 14 keeps it under the 2000 Rules.
- Looking for the authorisation instrument in the Rules. Rule 3 only says "authorised by the Central Government".
- Citing the Rules as the "Foreign Exchange Management (Compounding Proceedings) Rules". The short title omits "Management".
Need help with a compounding application?
Choosing the right authority, computing the sum involved and drafting the application are where applications go wrong. Our FEMA compounding team can prepare the application and represent you before the compounding authority.
Key takeaways
- The 2024 Rules, G.S.R. 566(E) dated 12 September 2024, supersede the 2000 Rules and took effect on publication.
- Pending applications on the date of commencement stay under the 2000 Rules (rule 14).
- The compounding authority is the Director of Enforcement or an authorised officer of the Directorate of Enforcement or of the Reserve Bank at the ranks in rule 3.
- Rules 4 and 5 divide the work between the Reserve Bank and the Directorate of Enforcement.
- Two drafting slips: the short title omits "Management" and a bracket in the preamble is not closed.
Read next
- Reserve Bank compounding powers by amount: rule 4
- Compounding by the Directorate of Enforcement: rule 5
- Compounding of contraventions under FEMA
- How to apply for FEMA compounding
Disclaimer: Based on the rules, regulations and Reserve Bank Master Directions under the Foreign Exchange Management Act, 1999 that this article names, each in the version and up to the date stated in the article, as consulted on 2 October 2026. Some texts are third-party copies or older prints and are identified as such. Limits, forms and time limits change by amendment and circular; later changes should be checked on the Reserve Bank and Gazette sites. This article is general information, not legal advice; check the official text before acting.